Why Drug Shortages Happen—and What to Do

Patient access to medicines is vital for the health of patients and the economy. The issue of drug shortages demands attention and collaboration from everyone involved in providing life-saving medicines. This includes both the pharmaceutical companies producing brand-name medications and generic drug manufacturers (whose products accounted for nearly 80 percent of prescriptions filled last year), as well as wholesalers, distributors, pharmacies and healthcare providers.

Shortages affect less than 1 percent of all drugs on the market, and most shortages involve generic medicines, with the FDA specifically calling attention to growing shortages among “older, sterile injectable drugs”. However, any shortage of medicines can deeply impact patients. Biopharmaceutical companies have worked to prevent drug shortages in advance, and will continue to work closely with the FDA to prevent manufacturing disruptions.

Why drug shortages happen
The factors that contribute to drug shortages are complex and multidimensional. They can occur for a variety of reasons found throughout the supply chain, including:

• shifts in clinical practices
• wholesaler and pharmacy inventory practices
• raw material shortages
• changes in hospital and pharmacy contractual relationships with suppliers and wholesalers
• adherence to distribution protocols mandated by the FDA
• individual company decisions to discontinue specific medicines
• natural disasters
• manufacturing challenges

When a shortage is expected

In the instance a shortage is anticipated, an innovator or generic manufacturer is encouraged to notify the FDA in order to address, avert, and mitigate the problem. In the event that the only version of a medically necessary drug is going to be discontinued, the manufacturer is required to inform the FDA six months in advance.

Pharmaceutical manufacturers have stepped up the voluntary reporting of anticipated events that could lead to drug shortages. According to the FDA, in 2011, this early notification helped prevent over 195 shortages. The biopharmaceutical industry will continue to work with FDA and other stakeholders to improve upon existing reporting requirements. Addressing anticipated occurrences of a drug shortage early in the process helps both healthcare providers and manufacturers identify treatment alternatives more efficiently, and we will continue to work with FDA to improve upon existing reporting requirements.

The problem of price gouging

When a drug shortage happens or one is anticipated, a “gray market” may spring up, with the potential for price gouging. The practice of price gouging by secondary wholesalers, which largely comprise the “gray market” is unacceptable and presents serious concerns for patient safety, as it cannot be assured that the products have been handled in a way that maintains their integrity. The manufacturer of a drug has no influence or control over the prices charged by a secondary wholesaler to a hospital or pharmacy.

In some cases, we are able to determine why there is a shortage, in other cases, we simply have no idea. As a first step we support the passage of the current bipartisan legislation in the House and Senate that would help the FDA prevent some shortages from occurring if they were notified about a manufacturing problem or planned discontinuation. FDA data indicate that 54% of drug shortages are related to product quality problems followed by lack of capacity or other manufacturing issues. About half the time manufacturers do not disclose the reason for a shortage. many drug shortages are the result of quality issues in the manufacturing process, loss of a manufacturing site, delays and capacity issues, shortages of raw materials-- particularly a single source of an Active Pharmaceutical Ingredient, product discontinuations, and secondary shortages of a therapeutic alternative resulting from a primary shortage. We recognize that there is no one cause of drug shortages, and therefore no one solution.

We are pleased to see that other facets of drug shortages, including economic factors, are being considered, but we are not currently in a position to draw any conclusions given a lack of sound data. A recent report by the Assistant Secretary for Planning and Evaluation describes the economic analysis of drug shortages. It identified a number of possible factors that influence drug shortages and noted that “Shortages have been concentrated in drugs where the volume of sales and drug prices were declining in the years preceding a shortage, suggesting that manufacturers are diverting capacity from shrinking

lines of business to growing ones.” It has been suggested that Medicare reimbursement policies may be partially to blame for drug shortages. While we believe this is an area that should be explored further, we are hesitant to focus on any one potential cause given the limited data and the numerous factors that contribute to shortages. It will be important to learn from other stakeholders in the supply chain including pharmaceutical manufacturers, wholesalers, group purchasing organizations, and others in order to fully assess these causes and solutions to this public health crisis.

Other incentives for manufacturers to stay or re-enter the market should be examined. For example, tax credits awarded to companies for developing new technologies in the production process should be explored. We believe that any incentives should be geared toward increasing production capacity and upgrading facilities in order to meet demand for critically important generic injectables.

In conclusion, drug shortages continue to be a very serious public health crisis, and compromise our ability to treat adult and pediatric cancer, to feed newborns intravenously who cannot eat, to relieve pain, to battle serious infections, and provide care when the most appropriate drug is unavailable. While some causes are known, others are not quite as clear.

Drug Shortages Background and Policy Options

Shortages of prescription drugs in the United States have gained increasing attention in recent years due to the scope and severity of the drugs in short supply. The majority of these shortages occur in drugs that are generic injectables, often administered in a hospital or clinic setting. The shortages have been occurring for anti-cancer drugs, anesthetics, pain, and nutritional drugs, all of which play crucial roles in the care of patients. The result of drug shortages is that caregivers must scramble to find the drug, or use an alternative if one is available. Many caregivers have expressed concern that even if a therapeutic alternative exists, it is likely an older drug which may have more severe side effects or negatively interact with other medications the patient is taking. Further, drug shortages have caused widespread fear among caregivers who are deeply concerned that care could be delayed, rationed, or is provided in a suboptimal manner to stretch doses and preserve scarce supplies.

Causes of drug shortages are many and complex. Manufacturing issues that lead to drug shortages include product quality issues that result in production halts or recalls, product discontinuations, and unavailability of active pharmaceutical ingredients (APIs) or other raw materials. Secondary shortages—or shortages that occur based on shifts in market demand caused by an initial shortage of another drug—are also common. Other contributing causes to drug shortages include quality issues that arise from the ever-increasing reliance on foreign ingredient and manufacturing sources and a lack of FDA resources to expedite approval of supplemental new drug applications and conduct foreign inspections.

While not a cause of drug shortages, just-in-time inventory practices by product distributors and practice sites have removed the buffer previously provided by larger inventories and resulted in an immediate impact of drug shortages on patient care.

While information on the root cause of each drug shortage is not always publicly available, the cause of many shortages can be traced back to a manufacturing processes or facilities that result in substandard end products. These manufacturing issues are compounded by constraints on capacity over the last few years that has resulted in fewer manufacturers producing critical drugs. When one manufacturer experiences a production interruption, other companies must ramp up production of their product to meet market needs. This increased production is sometimes, but not always, possible. In the case of sole-source drugs, this situation almost instantly results in a shortage situation.

You do not need to speculate that budget strapped states lack the resources to keep gray market drug wholesalers in check. Local police, state bureaus of insurance, state Drug Enforcement Agencies (DEA) and state Medicaid program integrity and fraud prevention also all lack resources and all remain uneducated about the nature and scope of this problem.

 I worry that we have not seen the worst of it with oral drugs. New FUL pricing and the wave of oral drugs going off patent, consolidation in the PBM/pharmacy sector, and new and reemerging drug shortages of oral antimicrobials all indicate that these problems are going to get much worse before they get ANY better.

Amplifying the problem is the fact that certain shortages that could be eased a little if certain compounding pharmacies could justifiably participate in tax payer funded programs. Instead, these pharmacists hands are tied by red tape and reimbursement issues. Patients, doctors and pharmacists are left to go without, use drugs that might not be reliable, and in certain cases, patients who can afford to will pay higher our of pocket costs, and/or wrongfully held financially liable for increased costs. Other patients will turn to unregulated Internet pharmacies, unscrupulous providers offering improper (and often cash based) treatments, and oh yes, let's not forget the patients who resort to veterinary medicine when and it is available.

Regulators, legislators, and industry do not cooperate, communicate, nor are they honest with each other resulting in blinded, imbalanced regulation, legislative non sequitors (ASP, AMP), and unprincipled trade practices.

In their financial reports many generic manufacturers cite the high number of ANDA's pending at FDA without having made any accommodation for those approvals in their capacity plans or capital expenditures.

FDA reviews and approves ANDAs without regard to the ability of any applicant to actually satisfy market demand.  User fees may somewhat gate the number of filings, but not enough to infuse rationality into the ganeric markets.  One approved ANDA representing a manufacturing capcity to support 5% market share can crash the price for the remaining 95% of the market.  Once the price is down, it is nearly impossible to bring it back to a responsible level that allows for both value contribution and profitablity.

Nor has there ever been any serious discussion to the value of FDA reviewing more than 5 (or whatever number) filings for the same molecule...more than ~5 competitors and the value, regardless of profitability, is fractured.  The math to this issue is simple (with no reference to validation batches)...if each applicant assumes a 25% market share target, then with 5 approvals, the market will be at 125% supply with generic price above or about 10% brand published pricing.  With 10 approvals, the market goes to over 200% supply and the price goes at or below 1% of brand published pricing.  Of course, some competitors will assume less than 25% market share, some will assume more than 25%, some pricing will hold higher, some will go lower.  The point is that once the supply is greater than 125%, why bother reviewing applications or giving approvals, the leftovers can be held in case someone drops out (first in first out).  Stabilizing the market is one means of securig supply when it means that the products bring value to the portfolio and the balance sheet.  And that the pricing becomes predicable enough to allow for investment in capital expenditures without it being viewed as wildly specuative.

With low value to finished goods, the cost of safety stock inventory to secure the supply chain is not palatable to management who must report to share holders or private owners.  Failure to supply payments are more palatable than inventory holding costs.  "Just in time" inventory in a complex supply chain within a highly regulated manufacturing environment is a recipe for shortages.  Inventory turns and run rates have meaning that may bring value.  Safety stock is a drag on profits (until there's a few out of spec results that delay quality releases or result in failed batches).

One of the above reports mentions that in many instances of current short-supply products there are less than 3 competitors.  In some cases, FDA shows additonal approvals and the absence of more competitors is likely due to low commercial values, low profitablity, and the bench strength of the 3 major injectable manufacturers in leveraging value with GPOs and wholesalers.

The payers need inexpensive prescription drugs, however, they need to define inexpensive and the trade-offs allowable for access to the low pricing within the context of publicly traded manufacturers who are expected to show both growth and profits.